Investors Flock to Secure Student Accommodation

29 May 2017

The last two years have witnessed the start of the institutionalisation of student accommodation as an asset class in Australia. This is most recently evidenced by the sale of the two Frasers Central Park assets, which provide a total of 1,041 student accommodation beds, purchased by Singaporean Sovereign wealth fund GIC for circa $430m and reportedly managed by Iglu, the operational platform acquired in 2014 in a joint venture with Macquarie Capital. The assets have the benefit of 828 NRAS allocations. Savills analysis of this sale results in a net initial yield of circa 5.73 percent.

This sale represents a step change in the market, noting that the previous sales of freehold direct-let student accommodation have ranged between 7.25 percent and 7.75 percent on a net initial yield basis. Setting a new benchmark, it reflects the weight of capital looking to acquire operational student accommodation assets from both existing investors and new entrants to the market.

Investors are attracted to the strong fundamentals of the asset class in relation to the core property asset classes in Australia and other student accommodation markets globally.

With the exception of Canberra, Savills analysis shows that Sydney, Brisbane, Melbourne, Adelaide and Perth all have less than one bed of Purpose Built Student Accommodation (PBSA) for every 10 full-time students.

Sydney has an acute shortage of good quality PBSA with less than one bed per 8.9 full-time students and even with a proposed pipeline delivery of just over 5,300 beds in the next four to five years, there will still be a significant shortage of good quality accommodation. A key challenge for the market will be the ability to deliver affordable accommodation.

These strong supply and demand characteristics alongside the opportunity for annual growth and a lower risk profile due to the granular nature of the income prove appealing to investors, who are also attracted to the yields demonstrated through the limited amount of transactional activity compared to other asset classes and more mature student accommodation markets such as the USA and UK. Net initial yields for prime direct-let student accommodation in London are currently sub-5 percent.

Urbanest currently have a Sydney portfolio of six properties and 2,696 beds making them the largest off campus player. Institutional players to enter the market include Global Student Accommodation (GSA) who announced plans to grow a significant portfolio with an aim of 25,000 beds in Australia and New Zealand; Goldman Sachs have entered into a joint venture with Blue Sky aiming to create a $1 billion portfolio comprising 10,000 beds.